The return on equity can be calculated as:
A)ROA × Equity multiplier.
B)Profit margin × ROA.
C)Profit margin × ROA × Total asset turnover.
D)ROA × Net income/Total assets.
E)ROA × Debt-equity ratio.

Question

Quizplus · Accepted Answer

The return on equity (ROE) can be calculated using the DuPont equation, which breaks down ROE into three components: net profit margin, total asset turnover, and equity multiplier. ROE = Net profit margin × Total asset turnover × Equity multiplier. Because equity multiplier equals total assets divided by total equity, we can rearrange the equation to get ROE = (Net income / Total assets) × (Total assets / Total equity), which is equal to ROA × Equity multiplier. Therefore, the correct answer is A.

The Return on Equity Can Be Calculated As